Your 457b Deferred Compensation Plan – What You Need To Know!

The 457b is really just the slightly different sibling of the 401k. It is a tax-advantaged retirement account that is used by employees of local and state governments to save for retirement. 

What Is The Purpose Of The 457b And How Does It Work?

The real purpose of the 457b plan is to allow public employees a tax-advantaged way to save for retirement and supplement their pensions.

Understanding 457b Contributions

Since the contributions into a 457b are pre-tax, you will pay ordinary income tax on the withdrawals in retirement. These withdrawals will be taxed at your future tax bracket rates when the withdrawal is made.

Is There An Employer Match?

Public government employers very rarely provide a match to their employees’ contributions within a 457b plan. This is partially due to the fact that they are already contributing to the pension system in which that employee is a member.

457b Limitations

One of the issues nationwide with 457b plans is the lack of education and lack of choices. What I mean by that is to contribute to a 457b plan, it must be approved by your employer through what is commonly referred to as a “payroll slot.”

Lack Of Education

Rarely do employers offer any training on the 457b plan or how to choose one that is right for you and your financial goals. Typically, what they will do is allow representatives from their approved 457b companies to attend new employee orientations, union meetings, or hang out on-site to try and enroll employees into their company’s plan.

Hardship Withdrawals

Hardship withdrawals taken from a 457b can be a bit tricky. Typically, these will only work for an “unforeseeable emergency” when no other resources or options are available.

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